A private equity firm acquires a stake in a business which is not listed on the stock exchange and attempts to turn the company around or grow it. Private equity firms typically raise funds through an investment fund with a clearly defined structure and distribution system and then put that money into their target companies. Limited Partners are the investors in the fund. Meanwhile, the private equity firm is the General Partner, responsible for buying selling, managing, and buying the targets.
PE firms can be critiqued for being uncompromising and pursuing profits at any cost, but they possess vast experience in management that allows them to enhance the value of portfolio companies by enhancing operations and supporting functions. For instance, they could guide new executives through the best practices in corporate strategy and financial management and assist in implementing streamlined accounting procurement, IT, and methods to reduce costs. They also can find ways to improve efficiency and increase revenue, which is a way they can enhance the value of their investments.
Unlike stock investments which can be converted quickly into cash, private equity funds usually require millions of dollars and could take years before they are able sell a target company at a profit. In the end, the market is extremely inliquid.
Working for a private equity company typically requires prior experience in banking or finance. Entry-level associates work primarily on due diligence and financing, whereas senior and junior associates focus on the relationship between the firm and its clients. Compensation for these positions has been on an upward trend in recent years.